SEC CHARGES ALCOA INC., WITH VIOLATING FOREIGN CORRUPT PRACTICES ACT

FROM:  SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged global aluminum producer Alcoa Inc. with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries repeatedly paid bribes to government officials in Bahrain to maintain a key source of business.

An SEC investigation found that more than $110 million in corrupt payments were made to Bahraini officials with influence over contract negotiations between Alcoa and a major government-operated aluminum plant.  Alcoa’s subsidiaries used a London-based consultant with connections to Bahrain’s royal family as an intermediary to negotiate with government officials and funnel the illicit payments to retain Alcoa’s business as a supplier to the plant.  Alcoa lacked sufficient internal controls to prevent and detect the bribes, which were improperly recorded in Alcoa’s books and records as legitimate commissions or sales to a distributor.

Alcoa agreed to settle the SEC’s charges and a parallel criminal case announced today by the U.S. Department of Justice by paying a total of $384 million.

“As the beneficiary of a long-running bribery scheme perpetrated by a closely controlled subsidiary, Alcoa is liable and must be held responsible,” said George Canellos, co-director of the SEC Enforcement Division.  “It is critical that companies assess their supply chains and determine that their business relationships have legitimate purposes.”

Kara N. Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit added, “The extractive industries have historically been exposed to a high risk of corruption, and those risks are as real today as when the FCPA was first enacted.”

According to the SEC’s order instituting settled administrative proceedings, Alcoa is a global provider of not only primary or fabricated aluminum, but also smelter grade alumina – the raw material that is supplied to plants called smelters that produce aluminum.  Alcoa refines alumina from bauxite that it extracts in its global mining operations.  From 1989 to 2009, one of the largest customers of Alcoa’s global bauxite and alumina refining business was Aluminium Bahrain B.S.C. (Alba), which is considered one of the largest aluminum smelters in the world.  Alba is controlled by Bahrain’s government, and Alcoa’s mining operations in Australia were the source of the alumina that Alcoa supplied to Alba.

According to the SEC’s order, Alcoa’s Australian subsidiary retained a consultant to assist in negotiations for long-term alumina supply agreements with Alba and Bahraini government officials.  A manager at the subsidiary described the consultant as “well versed in the normal ways of Middle East business” and one who “will keep the various stakeholders in the Alba smelter happy…”  Despite the red flags inherent in this arrangement, Alcoa’s subsidiary inserted the intermediary into the Alba sales supply chain, and the consultant generated the funds needed to pay bribes to Bahraini officials.  Money used for the bribes came from the commissions that Alcoa’s subsidiary paid to the consultant as well as price markups the consultant made between the purchase price of the product from Alcoa and the sale price to Alba.

The SEC’s order finds that Alcoa did not conduct due diligence or otherwise seek to determine whether there was a legitimate business purpose for the use of a middleman.  Recipients of the corrupt payments included senior Bahraini government officials, members of Alba’s board of directors, and Alba senior management.  For example, after Alcoa’s subsidiary retained the consultant to lobby a Bahraini government official, the consultant’s shell companies made two payments totaling $7 million in August 2003 for the benefit of the official.  Two weeks later, Alcoa and Alba signed an agreement in principle to have Alcoa participate in Alba’s plant expansion.  In October 2004, the consultant’s shell company paid $1 million to an account for the benefit of that same government official, and Alba went on to reach another supply agreement in principle with Alcoa.  Around the time that agreement was executed, the consultant’s companies made three payments totaling $41 million to benefit another Bahraini government official as well.

The SEC’s cease-and-desist order finds that Alcoa violated Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934.  Alcoa will pay $175 million in disgorgement of ill-gotten gains, of which $14 million will be satisfied by the company’s payment of forfeiture in the parallel criminal matter.  Alcoa also will pay a criminal fine of $209 million.

The SEC appreciates the assistance of the Fraud Section of the Criminal Division at the Department of Justice as well as the Federal Bureau of Investigation, Internal Revenue Service, Australian Federal Police, Ontario Securities Commission, Guernsey Financial Services Commission, Liechtenstein Financial Market Authority, Norwegian ØKOKRIM, United Kingdom Financial Control Authority, and Office of the Attorney General of Switzerland.

SEC ALLEGES ADM SUBSIDIARIES PAID BRIBES TO UKRAINIAN OFFICIALS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged global food processor Archer-Daniels-Midland Company (ADM) for failing to prevent illicit payments made by foreign subsidiaries to Ukrainian government officials in violation of the Foreign Corrupt Practices Act (FCPA).

An SEC investigation found that ADM’s subsidiaries in Germany and Ukraine paid $21 million in bribes through intermediaries to secure the release of value-added tax (VAT) refunds.  The payments were then concealed by improperly recording the transactions in accounting records as insurance premiums and other purported business expenses.  ADM had insufficient anti-bribery compliance controls and made approximately $33 million in illegal profits as a result of the bribery by its subsidiaries.

ADM, which is based in Decatur, Ill., has agreed to pay more than $36 million to settle the SEC’s charges.  In a parallel action, the U.S. Department of Justice today announced a non-prosecution agreement with ADM and criminal charges against an ADM subsidiary that has agreed to pay $17.8 million in criminal fines.

“ADM’s lackluster anti-bribery controls enabled its subsidiaries to get preferential refund treatment by paying off foreign government officials,” said Gerald Hodgkins, an associate director in the SEC’s Division of Enforcement.  “Companies with worldwide operations must ensure their compliance is vigilant across the globe and their transactions are recorded truthfully.”

According to the SEC’s complaint filed in U.S. District Court for the Central District of Illinois, the bribery occurred from 2002 to 2008.  Ukraine imposed a 20 percent VAT on goods purchased in its country.  If the goods were exported, the exporter could apply for a refund of the VAT already paid to the government on those goods.  However, at times the Ukrainian government delayed paying VAT refunds it owed or did not make any refund payments at all.  On these occasions, the outstanding amount of VAT refunds owed to ADM’s Ukraine affiliate reached as high as $46 million.

The SEC alleges that in order to obtain the VAT refunds that the Ukraine government was withholding, ADM’s subsidiaries in Germany and Ukraine devised several schemes to bribe Ukraine government officials to release the money.  The bribes paid were generally 18 to 20 percent of the corresponding VAT refunds.  For example, the subsidiaries artificially inflated commodities contracts with a Ukrainian shipping company to provide bribe payments to government officials.  In another scheme, the subsidiaries created phony insurance contracts with an insurance company that included false premiums passed on to Ukraine government officials.  The misconduct went unchecked by ADM for several years because of its deficient and decentralized system of FCPA oversight over subsidiaries in Germany and Ukraine.

The SEC’s complaint charges ADM with violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.  ADM consented to the entry of a final judgment ordering the company to pay disgorgement of $33,342,012 plus prejudgment interest of $3,125,354.  The final judgment also permanently enjoins ADM from violating those sections of the Exchange Act, and requires the company to report on its FCPA compliance efforts for a three-year period.  The settlement is subject to court approval.  The SEC took into account ADM’s cooperation and significant remedial measures, including self-reporting the matter, implementing a comprehensive new compliance program throughout its operations, and terminating employees involved in the misconduct.

The SEC’s investigation was conducted by Nicholas A. Brady and supervised by Moira T. Roberts and Anita B. Bandy.  The SEC appreciates the assistance of the Justice Department’s Fraud Section and the Federal Bureau of Investigation.

GERMAN ENGINEERING FIRM RESOLVES FCPA CHARGES, WILL PAY $32 MILLION

FROM:  U.S. JUSTICE DEPARTMENT 
Wednesday, December 11, 2013
German Engineering Firm Bilfinger Resolves Foreign Corrupt Practices Act Charges and Agrees to Pay $32 Million Criminal Penalty

Bilfinger SE, an international engineering and services company based in Mannheim, Germany, has agreed to pay a $32 million penalty to resolve charges that it violated the Foreign Corrupt Practices Act (FCPA) by bribing government officials of the Federal Republic of Nigeria to obtain and retain contracts related to the Eastern Gas Gathering System (EGGS) project, which was valued at approximately $387 million.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.

As part of the agreed resolution, the department today filed a three-count criminal information in U.S. District Court for the Southern District of Texas charging Bilfinger with violating and conspiring to violate the FCPA’s anti-bribery provisions.   The department and Bilfinger agreed to resolve the charges by entering into a deferred prosecution agreement for a term of three years.   In addition to the monetary penalty, Bilfinger agreed to implement rigorous internal controls, continue cooperating fully with the department, and retain an independent corporate compliance monitor for at least 18 months.   The agreement acknowledges Bilfinger’s cooperation with the department and its remediation efforts.

According to court documents, from late 2003 through June 2005, Bilfinger conspired with Willbros Group Inc. and others to make corrupt payments totaling more than $6 million to Nigerian government officials to assist in obtaining and retaining contracts related to the EGGS project.   Bilfinger and Willbros formed a joint venture to bid on the EGGS project and inflated the price of the joint venture’s bid by 3 percent to cover the cost of paying bribes to Nigerian officials.   As part of the conspiracy, Bilfinger employees bribed Nigerian officials with cash that Bilfinger employees sent from Germany to Nigeria.   At another point in the conspiracy, when Willbros employees encountered difficulty obtaining enough money to make their share of the bribe payments, Bilfinger loaned them $1 million, with the express purpose of paying bribes to the Nigerian officials.

Including today’s action, the department has filed criminal charges in the Southern District of Texas against three institutions and four executives and consultants in connection with the EGGS bribery scheme:

·          On Sept. 14, 2006, Jim Bob Brown, a former Willbros executive, pleaded guilty to one count of conspiracy to violate the FCPA in connection with his role in making corrupt payments to Nigerian government officials to obtain and retain the EGGS contract and in connection with his role in making corrupt payments in Ecuador.  Brown was sentenced on Jan. 28, 2010, to serve 12 months and one day in prison, to be followed by two years of supervised release, and ordered to pay a $17,500 fine.

·          On Nov. 5, 2007, Jason Steph, also a former Willbros executive, pleaded guilty to one count of conspiracy to violate the FCPA in connection with his role in making corrupt payments to Nigerian government officials to obtain and retain the EGGS contract.   Steph was sentenced on Jan. 28, 2010, to serve 15 months in prison, to be followed by two years of supervised release, and ordered to pay a $2,000 fine.

·          On May 14, 2008, Willbros Group Inc. and Willbros International Inc. entered into a deferred prosecution agreement and agreed to pay a $22 million criminal penalty in connection with the company’s payment of bribes to government officials in Nigeria and Ecuador.   On March 30, 2012, the government moved to dismiss the charges against Willbros on the grounds that Willbros had satisfied its obligations under the deferred prosecution agreement, and on April 2, 2012, the court granted the United States’ motion.

·          On Dec. 19, 2008, Kenneth Tillery, a former Willbros executive, was charged with conspiring to make and making bribe payments to Nigerian and Ecuadoran officials in connection with the EGGS project and pipeline projects in Ecuador and conspiring to launder the bribe payments.   Tillery remains a fugitive.   The charges against Tillery are merely accusations, and he is presumed innocent unless and until proven guilty.

·          On Nov. 12, 2009, Paul Grayson Novak, a former Willbros consultant, pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA in connection with his role in making corrupt payments to Nigerian government officials to obtain and retain the EGGS contract.   Novak was sentenced on May 3, 2013, to serve 15 months in prison, to be followed by two years of supervised release, and ordered to pay a $1 million fine.

The case was investigated by the FBI’s Washington Field Office and its team of special agents dedicated to the investigation of foreign bribery cases.   The case is being prosecuted by Senior Trial Attorney Laura N. Perkins of the Criminal Division’s Fraud Section.

WEATHERFORD INTERNATIONAL SUBSIDIARIES PLEAD GUILTY TO FCPA AND TRADING WITH THE ENEMY ACT VIOLATIONS

FROM:  U.S. JUSTICE DEPARTMENT
Tuesday, November 26, 2013
Three Subsidiaries of Weatherford International Limited Agree to Plead Guilty to FCPA and Export Control Violations
Weatherford International and Subsidiaries Agree to Pay $252 Million in Penalties and Fines

Three subsidiaries of Weatherford International Limited (Weatherford International), a Swiss oil services company that trades on the New York Stock Exchange, have agreed to plead guilty to anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and export controls violations under the International Emergency Economic Powers Act (IEEPA) and the Trading With the Enemy Act (TWEA).  Weatherford International and its subsidiaries have also agreed to pay more than $252 million in penalties and fines.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Kenneth Magidson of the Southern District of Texas, and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.  

Weatherford Services Limited (Weatherford Services), a subsidiary of Weatherford International, today agreed to plead guilty to violating the anti-bribery provisions of the FCPA.  As part of a coordinated FCPA resolution, the department today also filed a criminal information in U.S. District Court for the Southern District of Texas charging Weatherford International with one count of violating the internal controls provisions of the FCPA.   To resolve the charge, Weatherford International has agreed to pay an $87.2 million criminal penalty as part of a deferred prosecution agreement with the department.

“Effective internal accounting controls are not only good policy, they are required by law for publicly traded companies – and for good reason,” said Acting Assistant Attorney General Raman.  “This case demonstrates how loose controls and an anemic compliance environment can foster foreign bribery and fraud by a company’s subsidiaries around the globe.  Although Weatherford’s extensive remediation and its efforts to improve its compliance functions are positive signs, the corrupt conduct of Weatherford International’s subsidiaries allowed it to earn millions of dollars in illicit profits, for which it is now paying a significant price.”
“When business executives engage in bribery and pay-offs in order to obtain contracts, an uneven marketplace is created and honest competitor companies are put at a disadvantage,” said Assistant Director in Charge Parlave.  “The FBI is committed to investigating corrupt backroom deals that influence contract procurement and threaten our global commerce.”

In a separate matter, Weatherford International and four of its subsidiaries today agreed to pay a combined $100 million to resolve a criminal and administrative export controls investigation conducted by the U.S. Attorney’s Office for the Southern District of Texas, the Department of Commerce’s Bureau of Industry and Security, and the Department of the Treasury’s Office of Foreign Assets Control.   As part of the resolution of that investigation, Weatherford International has agreed to enter into a deferred prosecution agreement for a term of two years and two of its subsidiaries have agreed to plead guilty to export controls charges.

“The resolution today of these criminal charges represents the seriousness that our office and the Department of Justice puts on enforcing the export control and sanctions laws,” said U.S. Attorney Magidson.

In a related FCPA matter, the U.S. Securities and Exchange Commission ( SEC) filed a settlement today in which Weatherford International consented to the entry of a permanent injunction against FCPA violations and agreed to pay $65,612,360 in disgorgement, prejudgment interest, and civil penalties.   Weatherford International also agreed with the SEC to comply with certain undertakings regarding its FCPA compliance program, including the retention of an independent corporate compliance monitor.

The combined investigations resulted in the conviction of three Weatherford subsidiaries, the entry by Weatherford International into two deferred prosecution agreements and a civil settlement, and the payment of a total of $252,690,606 in penalties and fines.

FCPA Violations

According to court documents filed by the department, prior to 2008, Weatherford International knowingly failed to establish an effective system of internal accounting controls designed to detect and prevent corruption, including FCPA violations.  The company failed to implement these internal controls despite operating in an industry with a substantial corruption risk profile and despite growing its global footprint in large part by purchasing existing companies, often themselves in countries with high corruption risks.   As a result, a permissive and uncontrolled environment existed within which employees of certain of Weatherford International’s wholly owned subsidiaries in Africa and the Middle East were able to engage in corrupt conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations’ Oil for Food Program.

Court documents state that Weatherford Services employees established and operated a joint venture in Africa with two local entities controlled by foreign officials and their relatives from 2004 through at least 2008.   The foreign officials selected the entities with which Weatherford Services would partner, and Weatherford Services and Weatherford International employees knew that the members of the local entities included foreign officials’ relatives and associates.   Notwithstanding the fact that the local entities did not contribute capital, expertise or labor to the joint venture, neither Weatherford Services nor Weatherford International investigated why the local entities were involved in the joint venture.   The sole purpose of those local entities, in fact, was to serve as conduits through which Weatherford Services funneled hundreds of thousands of dollars in payments to the foreign officials controlling them.   In exchange for the payments they received from Weatherford Services through the joint venture, the foreign officials awarded the joint venture lucrative contracts, gave Weatherford Services inside information about competitors’ pricing, and took contracts away from Weatherford Services’ competitors and awarded them to the joint venture.

Additionally, Weatherford Services employees in Africa bribed a foreign official so that he would approve the renewal of an oil services contract, according to court documents.   Weatherford Services funneled bribery payments to the foreign official through a freight forwarding agent it retained via a consultancy agreement in July 2006.   Weatherford Services generated sham purchase orders for consulting services the freight forwarding agent never performed, and the freight forwarding agent, in turn, generated sham invoices for those same nonexistent services.   When paid for those invoices, the freight forwarding agent passed at least some of those monies on to the foreign official with the authority to approve Weatherford Services’ contract renewal.   In exchange for these payments, the foreign official awarded the renewal contract to Weatherford Services in 2006.

Further, according to court documents, in a third scheme in the Middle East, from 2005 through 2011, employees of Weatherford Oil Tools Middle East Limited (WOTME), another Weatherford International subsidiary, awarded improper “volume discounts” to a distributor who supplied Weatherford International products to a government-owned national oil company, believing that those discounts were being used to create a slush fund with which to make bribe payments to decision-makers at the national oil company.   Between 2005 and 2011, WOTME paid approximately $15 million in volume discounts to the distributor.  

Weatherford International’s failure to implement effective internal accounting controls also permitted corrupt conduct relating to the United Nations’ Oil for Food Program to occur, according to court documents.   Between in or about February 2002 and in or about July 2002, WOTME paid approximately $1,470,128 in kickbacks to the government of Iraq on nine contracts with Iraq’s Ministry of Oil, as well as other ministries, to provide oil drilling and refining equipment.   WOTME falsely recorded these kickbacks as other, seemingly legitimate, types of costs and fees.   Further, WOTME concealed the kickbacks from the U.N. by inflating contract prices by 10 percent.

According to court documents, these corrupt transactions in Africa and the Middle East earned Weatherford International profits of $54,486,410, which were included in the consolidated financial statements that Weatherford International filed with the SEC .

In addition to the guilty plea by Weatherford Services, the deferred prosecution agreement entered into by Weatherford International and the Department requires the company to cooperate with law enforcement, retain an independent corporate compliance monitor for at least 18 months, and continue to implement an enhanced compliance program and internal controls designed to prevent and detect future FCPA violations.   The agreement acknowledges Weatherford International’s cooperation in this matter, including conducting a thorough internal investigation into bribery and related misconduct, and its extensive remediation and compliance improvement efforts.

Export Control Violations

According to court documents filed today in a separate matter, between 1998 and 2007, Weatherford International and some its subsidiaries engaged in conduct that violated various U.S. export control and sanctions laws by exporting or re-exporting oil and gas drilling equipment to, and conducting Weatherford business operations in, sanctioned countries without the required U.S. Government authorization.   In addition to the involvement of employees of several Weatherford International subsidiaries, some Weatherford International executives, managers, or employees on multiple occasions participated in, directed, approved, and facilitated the transactions and the conduct of its various subsidiaries.

This conduct involved persons within the U.S.-based management structure of Weatherford International participating in conduct by Weatherford International foreign subsidiaries, and the unlicensed export or re-export of U.S.-origin goods to Cuba, Iran, Sudan, and Syria. Weatherford subsidiaries Precision Energy Services Colombia Ltd. (PESC) and Precision Energy Services Ltd. (PESL), both headquartered in Canada, conducted business in the country of Cuba.   Weatherford’s subsidiary Weatherford Oil Tools Middle East (WOTME), headquartered in the United Arab Emirates (UAE), conducted business in the countries of Iran, Sudan, and Syria.   Weatherford’s subsidiary Weatherford Production Optimisation f/k/a eProduction Solutions U.K. Ltd. (eProd-U.K.), headquartered in the United Kingdom, conducted business in the country of Iran. Weatherford generated approximately $110 million in revenue from its illegal transactions in Cuba, Iran, Syria and Sudan.    

To resolve these charges, Weatherford and its subsidiaries will pay a total penalty of $100 million, with a $48 million monetary penalty paid pursuant to a deferred prosecution agreement, $2 million paid in criminal fines pursuant to the two guilty pleas, and a $50 million civil penalty paid pursuant to a Department of Commerce settlement agreement to resolve 174 violations charged by Commerce’s Bureau of Industry and Security.   Weatherford International and certain of its affiliates are also signing a $91 million settlement agreement with the Department of the Treasury to resolve their civil liability arising out of the same underlying course of conduct, which will be deemed satisfied by the payments above.

The FCPA case was investigated by the FBI’s Washington Field Office and its team of special agents dedicated to the investigation of foreign bribery cases.   The case is being prosecuted by Trial Attorney Jason Linder of the Criminal Division’s Fraud Section, with the assistance of Assistant U.S. Attorney Mark McIntyre of the Southern District of Texas.  The case was previously investigated by Fraud Section Trial Attorneys Kathleen Hamann and Allan Medina, with assistance from the Criminal Division’s Asset Forfeiture and Money Laundering Section.  The Justice Department also acknowledges and expresses its appreciation for the significant assistance provided by the SEC’s FCPA Unit.

The export case was investigated by the Department of Commerce’s Bureau of Industry and Security, Office of Export Enforcement, and the Department of the Treasury’s Office of Foreign Assets Control.   The case is being prosecuted by Assistant U.S. Attorney S. Mark McIntyre and was previously investigated by Assistant U.S. Attorney Jeff Vaden.

3 PLEAD GUILTY TO BRIBERY OF FOREIGN OFFICIALS, MONEY LAUNDERING AND CONSPIRACY TO OBSTRUCT JUSTICE

FROM:  U.S. JUSTICE DEPARTMENT 
Friday, August 30, 2013

Three Former Broker-dealer Employees Plead Guilty in Manhattan Federal Court to Bribery of Foreign Officials, Money Laundering and Conspiracy to Obstruct Justice

Three employees of a New York-based U.S. broker-dealer have pleaded guilty for their roles in bribery schemes involving two state economic development banks in Venezuela.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara of the Southern District of New York and Assistant Director in Charge George Venizelos of the New York Office of the FBI made the announcement.

Ernesto Lujan, Jose Alejandro Hurtado and Tomas Alberto Clarke Bethancourt pleaded guilty in New York federal court to conspiring to violate the Foreign Corrupt Practices Act (FCPA), to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.  These charges relate to a scheme to bribe a foreign official named Maria de los Angeles Gonzalez de Hernandez at Banco de Desarrollo Económico y Social de Venezuela (BANDES), a state economic development bank in Venezuela, in exchange for receiving trading business from BANDES.  Lujan, Hurtado and Clarke each also pleaded guilty to an additional charge of conspiring to violate the FCPA in connection with a similar scheme to bribe a foreign official employed by Banfoandes (the “Banfoandes Foreign Official”), another state economic development bank in Venezuela, and to conspiring to obstruct an examination by the U.S. Securities and Exchange Commission (SEC) of the New York-based broker-dealer (the “Broker-Dealer”) where all three defendants had worked, to conceal the true facts of the Broker-Dealer’s relationship with BANDES.

Lujan, 50, and Clarke, 43, entered their guilty pleas yesterday before U.S. Magistrate Judge James C. Francis IV, and Hurtado, 38, pleaded guilty today, also before Judge Francis. The men each pleaded guilty to the same six offenses and face a maximum penalty of five years in prison on each count except money laundering, which carries a maximum penalty of 20 years in prison.  Sentencing for Lujan and Clarke is scheduled for Feb. 11, 2014, before U.S. District Judge Paul G. Gardephe.  Hurtado is scheduled for sentencing before U.S. District Judge Harold Baer Jr. on March 6, 2014.

According to the informations filed against Lujan, Hurtado and Clarke this week, the criminal complaints previously filed, and statements made during the plea proceedings, Lujan, Clarke and Hurtado worked or were associated with the Broker-Dealer, principally through its Miami offices.  In 2008, the Broker-Dealer established a group called the Global Markets Group, which included Lujan, Clarke and Hurtado, and which offered fixed income trading services to institutional clients.

One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance.  The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding.  Gonzalez was an official at BANDES and oversaw the development bank’s overseas trading activity.  At her direction, BANDES conducted substantial trading through the Broker-Dealer.  Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed-income investments for which the Broker-Dealer charged the bank a mark-up on purchases and a mark-down on sales.

The Broker-Dealer also conducted business with Banfoandes, another state development bank in Venezuela that, along with its 2009 successor Banco Bicentenario, operated under the direction of the Venezuelan Ministry of Finance.  Banfoandes acted as a financial agent of the Venezuelan government in order to promote economic and social development by, among other things, offering credit to low-income Venezuelans.  The Banfoandes Foreign Official was responsible for some of Banfoandes’s foreign investments.

Court records state that from early 2009 through 2012, Lujan, Clarke and Hurtado participated in a bribery scheme in which Gonzalez allegedly directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer split the revenue the Broker-Dealer generated from this trading business with Gonzalez.  During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES.  Agents and employees of the Broker-Dealer, including Lujan, Clarke and Hurtado, devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.  Emails, account records and other documents collected from the Broker-Dealer and other sources reveal that Gonzalez allegedly received a substantial share of the revenue generated by the Broker-Dealer for BANDES-related trades.  Specifically, Gonzalez allegedly received kickbacks and payments from Broker-Dealer agents and employees that were frequently in six-figure amounts.

To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places.  For instance, Lujan, Clarke and Hurtado used accounts they controlled in Switzerland to transfer funds to an account Gonzalez allegedly controlled in Switzerland.  Additionally, Hurtado and his spouse received substantial compensation from the Broker-Dealer, portions of which Hurtado transferred to an account allegedly held by Gonzalez in Miami and to an account held by an associate of Gonzalez in Switzerland.  Hurtado also sought and allegedly received reimbursement from Gonzalez for the U.S. income taxes he had paid on money that he used to make kickback payments to Gonzalez.  Lujan and Clarke also derived substantial profit from their roles in the bribery scheme.
 
According to court records, beginning in or about November 2010, the SEC commenced a periodic examination of the Broker-Dealer, and from November 2010 through March 2011 the SEC’s examination staff made several visits to the Broker-Dealer’s offices in Manhattan.  In early 2011, Lujan, Clarke and Hurtado discussed their concern that the SEC was examining the Broker-Dealer’s relationship with BANDES and asking questions regarding certain emails and other information that the SEC examination staff had discovered.  Lujan, Clarke and Hurtado agreed that they would take steps to conceal the true facts of the Broker-Dealer’s relationship with BANDES, including deleting emails.  Lujan, Clarke and Hurtado then, in fact, deleted emails.  Additionally as part of this effort to obstruct the SEC examination, Clarke lied to SEC examination staff in response to an interview question about his relationship to an individual who had received purported foreign associate payments relating to BANDES.

In a related scheme, from 2008 through mid-2009, Lujan, Clarke and Hurtado paid bribes to the Banfoandes Foreign Official, who, in exchange, directed Banfoandes trading business to the Broker-Dealer.

Gonzalez was charged in a criminal complaint and arrested on May 3, 2013, in connection with the BANDES bribery scheme.  The charges against Gonzalez are merely accusations, and she is presumed innocent unless and until proven guilty.

This ongoing investigation is being conducted by the FBI, with assistance from the SEC and the Justice Department’s Office of International Affairs.

Assistant Chief James Koukios and Trial Attorneys Maria Gonzalez Calvet and Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Harry A. Chernoff and Jason H. Cowley of the Southern District of New York’s Securities and Commodities Fraud Task Force are in charge of the prosecution.  Assistant U.S. Attorney Carolina Fornos is responsible for the forfeiture aspects of the case.

TOTAL S.A. WILL PAY $398 MILLION TO SETTLE SEC'S BRIBERY CHARGES REGARDING AN IRANIAN OFFICIAL

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., May 29, 2013 — The Securities and Exchange Commission today charged France-based oil and gas company Total S.A. with violating the Foreign Corrupt Practices Act (FCPA) by paying $60 million in bribes to intermediaries of an Iranian government official who then exercised his influence to help the company obtain valuable contracts to develop significant oil and gas fields in Iran.

The SEC alleges that Total made more than $150 million in profits through the bribery scheme. Total attempted to cover up the true nature of the illegal payments by entering into sham consulting agreements with intermediaries of the Iranian official and mischaracterizing the bribes in its books and records as legitimate "business development expenses" related to the consulting agreements. Total had inadequate systems to properly review the consulting agreements and lacked sufficient internal controls to comply with federal laws prohibiting bribery.

Total, whose securities are publicly traded on the New York Stock Exchange, agreed to pay more than $398 million to settle the SEC’s charges and a parallel criminal matter announced today by the U.S. Department of Justice.

"Total used illicit payments to win business in Iran, and reaped substantial financial benefits as a result," said Andrew M. Calamari, Director of the SEC’s New York Regional Office. "Total must now pay back all of its profits from the company’s corrupt conduct and additionally pay criminal penalties on top of that."

According to the SEC’s order instituting settled administrative proceedings, Total negotiated a development contract in 1995 with the National Iranian Oil Company (NIOC) for the country’s Sirri A and E oil and gas fields. Prior to executing the contract, Total held a meeting with the Iranian official and agreed to enter into a purported consulting agreement with an intermediary he designated. They agreed that Total would make payments to the intermediary under the guise of a consulting agreement when the real purpose was to induce the Iranian official to use his influence to help obtain NIOC’s approval of the development agreement. After the contract was executed, Total corruptly made the bribery payments that resulted in NIOC allowing Total to develop the Sirri A and E oil and gas fields and make more than $150 million in profits.

The SEC’s order requires Total to pay disgorgement of $153 million in illicit profits and retain an independent compliance consultant to review and report on Total’s compliance with the FCPA. Total also must cease and desist from committing or causing any violations of Section 30A, Section 13(b)(2)(A), and Section 13(b)(2)(B) of the Securities Exchange Act of 1934.

In the parallel criminal proceedings, Total agreed to pay a $245.2 million penalty as part of a deferred prosecution agreement. Total also was charged today by the prosecutor of Paris (François Molins, Procureur de la République) of the Tribunal de Grande Instance de Paris for violations of French laws.

The SEC’s investigation was led by Sharon Binger, Alex Janghorbani, and Barry O’Connell of the New York Regional Office’s Enforcement Division with significant assistance from the SEC Enforcement Division’s FCPA Unit and the Department of Justice’s Criminal Division’s Fraud Section. The SEC also appreciates the assistance of French regulatory authorities.

FORMER POWER COMPANY EXECUTIVE CHARGED IN FOREIGN BRIBERY SCHEME

FROM: U.S. DEPARTMENT OF JUSTICE
Wednesday, May 1, 2013
Former Executive of French Power Company Subsidiary Charged in Connection with Foreign Bribery Schem
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A former executive of the U.S. subsidiary of a French power and transportation company was charged in a superseding indictment for his alleged participation in a scheme to pay bribes to foreign government officials, Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney for the District of Connecticut David B. Fein and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office announced today.

William Pomponi, 65, a former vice president of sales for the Connecticut-based U.S. subsidiary, was charged in a superseding indictment late yesterday in the District of Connecticut with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive charges of FCPA and money laundering violations.

On April 16, 2013, charges against Frederic Pierucci and a guilty plea by David Rothschild in connection with the bribery scheme were announced. Pierucci is charged in the superseding indictment with Pomponi. On Nov. 2, 2012, Rothschild pleaded guilty to a criminal information.

According to the charges, the defendants, together with others, paid bribes to officials in Indonesia, including a member of Indonesian Parliament and high-ranking members of Perusahaan Listrik Negara (PLN), the state-owned and state-controlled electricity company in Indonesia, in exchange for assistance in securing a $118 million contract, known as the Tarahan project, for the company and its consortium partner to provide power-related services for the citizens of Indonesia. The charges allege that, in order to conceal the bribes, the defendants retained two consultants purportedly to provide legitimate consulting services on behalf of the power company and its subsidiaries in connection with the Tarahan project. In reality, however, the primary purpose for hiring the consultants was allegedly to use the consultants to pay bribes to Indonesian officials.

The first consultant retained by the defendants allegedly received hundreds of thousands of dollars into his Maryland bank account to be used to bribe the member of Parliament, according to the charges. The consultant then allegedly transferred the bribe money to a bank account in Indonesia for the benefit of the official. According to court documents, emails between Pomponi, Pierucci, Rothschild and their co-conspirators discuss in detail the use of the first consultant to funnel bribes to the member of Parliament and the influence that the member of Parliament could exert over the Tarahan project. However, when Pomponi, Pierucci and others determined that the first consultant was not effectively bribing key officials at PLN, they allegedly retained a second consultant to accomplish that purpose. The charges allege that the power company deviated from its usual practice of paying consultants on a pro-rata basis in order to make a much larger up-front payment to the second consultant so that the consultant could "get the right influence." An employee at the power company’s subsidiary in Indonesia sent an email to Pomponi, Pierucci and others asking them to finalize the consultancy agreement with the front-loaded payments but stated that in the meantime the employee would give his word to a high-level official at PLN, according to the charges.

The conspiracy to commit violations of the FCPA count carries a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost. The substantive FCPA counts each carry a maximum penalty of five years in prison and a fine of the greater of $100,000 or twice the value gained or lost. The conspiracy to commit money laundering count carries a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction. The substantive money laundering counts each carry a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction.

An indictment is merely an accusation, and defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.

The case is being prosecuted by Trial Attorney Daniel S. Kahn of the Criminal Division’s Fraud Section and Assistant U.S. Attorney David E. Novick of the District of Connecticut. The case is being investigated by FBI agents who are part of the Washington Field Office’s dedicated FCPA squad, with assistance from the Meriden, Conn., Resident Agency of the FBI. Significant assistance was provided by the Criminal Division’s Office of International Affairs, and the department has also worked closely with its law enforcement counterparts in Indonesia at the Komisi Pemberantasan Korupsi (Corruption Eradication Commission) and deeply appreciates KPK’s assistance in this matter.

RALPH LAUREN CORPORATION SETTLES FCPA ALLEGTIONS WITH JUSTICE DEPARTMENT

FROM: U.S. DEPARTMENT OF JUSTICE
Monday, April 22, 2013

Ralph Lauren Corporation Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay $882,000 Monetary Penalty

Ralph Lauren Corporation (RLC), a New York based apparel company, has agreed to pay an $882,000 penalty to resolve allegations that it violated the Foreign Corrupt Practices Act (FCPA) by bribing government officials in Argentina to obtain improper customs clearance of merchandise, announced Mythili Raman, the Acting Assistant Attorney General for the Criminal Division, and Loretta E. Lynch, the United States Attorney for the Eastern District of New York.

According to the agreement, the manager of RLC’s subsidiary in Argentina bribed customs officials in Argentina over the span of five years to improperly obtain paperwork necessary for goods to clear customs; permit clearance of items without the necessary paperwork and/or the clearance of prohibited items; and on occasion, to avoid inspection entirely. RLC’s employee disguised the payments by funneling them through a customs clearance agency, which created fake invoices to justify the improper payments. During these five years, RLC did not have an anti-corruption program and did not provide any anti-corruption training or oversight with respect to its subsidiary in Argentina.

In addition to the monetary penalty, RLC agreed to cooperate with the Department of Justice, to report periodically to the department concerning RLC’s compliance efforts, and to continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. If RLC abides by the terms of the agreement, the Department will not prosecute RLC in connection with the conduct.

The agreement acknowledges RLC’s extensive, thorough, and timely cooperation, including self-disclosure of the misconduct, voluntarily making employees available for interviews, making voluntary document disclosures, conducting a worldwide risk assessment, and making multiple presentations to the Department on the status and findings of the internal investigation and the risk assessment. In addition, RLC has engaged in early and extensive remediation, including conducting extensive FCPA training for employees worldwide, enhancing the company’s existing FCPA policy, implementing an enhanced gift policy and other enhanced compliance, control and anti-corruption policies and procedures, enhancing its due diligence protocol for third-party agents, terminating culpable employees and a third-party agent, instituting a whistleblower hotline, and hiring a designated corporate compliance attorney.

In a related matter, the U.S. Securities and Exchange Commission today announced a non-prosecution agreement with RLC , in which RLC agreed to pay $$734,846 in disgorgement and prejudgment interest.

The case is being prosecuted by Trial Attorney Daniel S. Kahn of the Criminal Division’s Fraud Section and Sarah Coyne, Chief of the Business and Securities Fraud Section of the Eastern District of New York. The case was investigated by the FBI’s New York Field Office. The department acknowledges and expresses its appreciation for the assistance provided by the SEC’s Division of Enforcement.

MAN CHARGED FOR OBSTRUCTION IN GUINEAN MINING RIGHTS BRIBE CASE

FROM: U.S. DEPARTMENT OF JUSTICE
Monday, April 15, 2013
Obstruction Charges Filed in Ongoing FCPA Investigation into Alleged Guinean Mining Rights Bribe Scheme
Frederic Cilins, 50, a French citizen, has been arrested and accused of attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.

Mythili Raman, Acting Assistant Attorney General for the Justice Department’s Criminal Division; Preet Bharara, the U.S. Attorney for the Southern District of New York; and George Venizelos, the Assistant Director in Charge of the FBI’s New York Field Office, made the announcement.

"Mr. Cilins is charged with scheming to destroy documents and induce a witness to give false testimony to a grand jury investigating potential violations of the Foreign Corrupt Practices Act," said Acting Assistant Attorney General Raman. "The Justice Department is committed to rooting out foreign bribery, and we will not tolerate criminal attempts to thwart our efforts."

"A grand jury can never learn the truth, and justice cannot prevail, where documents are intentionally destroyed and testimony is tainted by lies," said U.S. Attorney Bharara. "As alleged, Frederic Cilins attempted to obstruct a significant investigation by corrupting evidence and testimony in precisely those ways. With today’s arrest, he now begins his own path to justice for his alleged conduct."

"As alleged, Cilins attempted to buy evidence he sought to destroy," said FBI Assistant Director in Charge Venizelos. "The destruction of evidence was in furtherance of Cilins’s alleged effort to obstruct an investigation into a bribery scheme. In effect, he was allegedly willing to commit bribery in an effort to cover up a bribery."

Cilins was arrested in Jacksonville, Fla., on April 14, 2013, and a criminal complaint was filed in the Southern District of New York today charging Cilins with tampering with a witness, victim or informant; obstructing a criminal investigation; and destroying, altering or falsifying records in a federal investigation. The obstruction charge carries a maximum penalty of five years in prison, and the tampering and record-destruction charges each carry a maximum penalty of 20 years in prison. Cilins made an initial appearance in the Middle District of Florida and was detained pending a detention hearing scheduled for April 18, 2013.

According to the complaint, Cilins allegedly attempted to obstruct an ongoing federal grand jury investigation concerning potential violations of the Foreign Corrupt Practices Act and laws proscribing money laundering. The complaint states the federal grand jury is investigating whether a particular mining company and its affiliates – on whose behalf Cilins has been working – transferred into the United States funds in furtherance of a scheme to obtain and retain valuable mining concessions in the Republic of Guinea’s Simandou region. During monitored and recorded phone calls and face-to-face meetings, Cilins allegedly agreed to pay substantial sums of money to induce a witness to the bribery scheme to turn over documents to Cilins for destruction, which Cilins knew had been requested by the FBI and needed to be produced before a federal grand jury. The complaint also alleges that Cilins sought to induce the witness to sign an affidavit containing numerous false statements regarding matters under investigation by the grand jury.

The complaint alleges that the documents Cilins sought to destroy included original copies of contracts between the mining company and its affiliates and the former wife of a now-deceased Guinean government official, who at the relevant time held an office in Guinea that allowed him to influence the award of mining concessions. The contracts allegedly related to a scheme by which the mining company and its affiliates offered the wife of the Guinean official millions of dollars, which were to be distributed to the official’s wife as well as ministers or senior officials of Guinea’s government whose authority might be needed to secure the mining rights.

According to the complaint, the official’s wife incorporated a company in 2008 that agreed to take all necessary steps to secure the valuable mining rights for the mining company’s subsidiary. That same contract stipulated that $2 million was to be transferred to the official’s wife’s company and an additional sum was to be "distributed among persons of good will who may have contributed to facilitating the granting of" the valuable mining rights. According to the complaint, in 2008, the mining company and its affiliates also "commit[ted] to giving 5% of the shares of stock" in particular mining areas in Guinea to the official’s wife.

A complaint is merely an accusation, and the defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt.

The case is being prosecuted by Trial Attorney Stephen J. Spiegelhalter of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Elisha J. Kobre of the Southern District of New York. The case is being investigated by the FBI. The Justice Department’s Office of International Affairs and Office of Enforcement Operations have also assisted in the investigation.

FOUR FORMER BIZJET EXECUTIVES CHARED WITH FOREIGN BRIBERY

FROM: U.S. DEPARTMENT OF JUSTICE
Friday, April 5, 2013
Four Former Executives of Lufthansa Subsidiary Bizjet Charged with Foreign Bribery

Charges were unsealed today against four former executives of BizJet International Sales and Support Inc., the U.S.-based subsidiary of Lufthansa Technik AG, which provides aircraft maintenance, repair and overhaul (MRO) services, for their alleged participation in a scheme to pay bribes to government officials in Latin America, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office.

According to the charges, Bernd Kowalewski, the former president and chief executive officer of BizJet, Jald Jensen, the former sales manager at BizJet, Peter DuBois, the former vice president of sales and marketing at BizJet, and Neal Uhl, the former vice president of finance at BizJet, paid bribes to officials employed by the Mexican Policia Federal Preventiva, the Mexican Coordinacion General de Transportes Aereos Presidenciales, the air fleet for the Gobierno del Estado de Sinaloa in Mexico, the air fleet for the Estado De Roraima in Brazil, and the Republica de Panama Autoridad Aeronautica Civil in exchange for those officials’ assistance in securing contracts for BizJet to perform MRO services.

Kowalewski and Jensen were charged by indictment filed in U.S. District Court for the Northern District of Oklahoma on Jan. 5, 2012, with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive charges of violating the FCPA and money laundering. The two defendants are believed to remain abroad.

DuBois and Uhl pleaded guilty on Jan. 5, 2012, to criminal informations, and their pleas were unsealed today. DuBois pleaded guilty to one count of conspiracy to violate the FCPA and one count of violating the FCPA. Uhl pleaded guilty to one count of conspiracy to violate the FCPA. Both defendants were sentenced today by U.S. District Judge Gregory K. Frizzell in the Northern District of Oklahoma. DuBois’s sentence was reduced from a sentencing guidelines range of 108 to 120 months in prison to probation and eight months home detention based on his cooperation in the government’s investigation. Uhl’s sentence was similarly reduced for cooperation from a guidelines range of 60 months in prison to probation and eight months home detention.

"The charges announced today allege a conspiracy by senior executives at BizJet to win contracts in Latin American countries through bribery and illegal tactics," said Acting Assistant Attorney General Raman. "Former BizJet executives, including the former president and chief executive officer, allegedly authorized and caused hundreds of thousands of dollars to be paid directly and indirectly to ranking military officials in various foreign countries, and two former executives have pleaded guilty for their roles in the conspiracy. These charges reflect our continued commitment to holding individuals accountable for violations of the FCPA, including, as in this instance, after entering into a deferred prosecution agreement with their employer."

"Business executives have a responsibility to act appropriately in order to maintain a fair and competitive international market," said FBI Assistant Director in Charge Parlave. "The unsealing of these bribery charges, and today’s sentencing, demonstrate that the FBI is committed to curbing corruption and will pursue all those who try to advance their businesses through bribery."

The charges allege that the defendants, in many instances, paid bribes directly to foreign officials in Mexico, Panama and Brazil for assistance in securing contracts. In other instances, the defendants allegedly funneled bribes through a shell company owned and operated by Jensen. The shell company, Avionica International & Associates Inc., allegedly operated under the pretense of providing aircraft maintenance brokerage services but in reality laundered money related to BizJet’s bribery scheme. Avionica was located at Jensen’s personal residence in Van Nuys, Calif., and Jensen was the only officer, director and employee.

The charges announced today follow the announcement on March 14, 2012, of a deferred prosecution agreement with BizJet and an $11.8 million monetary penalty to resolve charges related to the corrupt conduct. That agreement acknowledged BizJet’s voluntary disclosure, extraordinary cooperation and extensive remediation in this case.

The conspiracy to commit violations of the FCPA count carries a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost. The FCPA counts each carry a maximum penalty of five years in prison and a fine of the greater of $100,000 or twice the value gained or lost. The conspiracy to commit money laundering count carries a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction. The money laundering counts each carry a maximum penalty of 10 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction.

An indictment is merely an accusation, and defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.

The case is being prosecuted by Trial Attorneys Daniel S. Kahn and Stephen J. Spiegelhalter of the Criminal Division’s Fraud Section. Assistant U.S. Attorney Kevin Leitch from the Northern District of Oklahoma has provided assistance in the case. The department has also worked closely with its law enforcement counterparts in Mexico and Panama in this matter and is grateful for their assistance. The case is being investigated by FBI agents who are part of the Washington Field Office’s dedicated FCPA squad.

ELI LILLY AND COMPANY SETTLES FOREIGN CORRUPT PRACTICES CHARGES WITH SEC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today charged Eli Lilly and Company with violations of the Foreign Corrupt Practices Act (FCPA) for improper payments its subsidiaries made to foreign government officials to win millions of dollars of business in Russia, Brazil, China and Poland.

The SEC alleges that the Indianapolis-based pharmaceutical company’s subsidiary in Russia used offshore "marketing agreements" to pay millions of dollars to third parties chosen by government customers or distributors, despite knowing little or nothing about the third parties beyond their offshore address and bank account information. These offshore entities rarely provided any services, and in some instances were used to funnel money to government officials in order to obtain business for the subsidiary. Transactions with off-shore or government-affiliated entities did not receive specialized or closer review for possible FCPA violations. Paperwork was accepted at face value and little was done to assess whether the terms or circumstances surrounding a transaction suggested the possibility of foreign bribery.

The SEC alleges that when the company did become aware of possible FCPA violations in Russia, Lilly did not curtail the subsidiary’s use of the marketing agreements for more than five years. Lilly subsidiaries in Brazil, China, and Poland also made improper payments to government officials or third party entities associated with government officials. Lilly agreed to pay more than $29 million to settle the SEC’s charges.

As alleged in the SEC’s complaint filed in federal court in Washington D.C.:
Lilly’s subsidiary in Russia paid millions of dollars to off-shore entities for alleged "marketing services" in order to induce pharmaceutical distributors and government entities to purchase Lilly’s drugs, including approximately $2 million to an off-shore entity owned by a government official and approximately $5.2 million to off-shore entities owned by a person closely associated with an important member of Russia’s Parliament. Despite the company’s recognition that the marketing agreements were being used to "create sales potential" with government customers and that it did not appear that any actual services were being rendered under the agreements, Eli Lilly allowed its subsidiary to continue using the agreements for years.
Employees at Lilly’s subsidiary in China falsified expense reports in order to provide spa treatments, jewelry, and other improper gifts and cash payments to government-employed physicians.
Lilly’s subsidiary in Brazil allowed one of its pharmaceutical distributors to pay bribes to government health officials to facilitate $1.2 million in sales of a Lilly drug product to state government institutions.
Lilly’s subsidiary in Poland made eight improper payments totaling $39,000 to a small charitable foundation that was founded and administered by the head of one of the regional government health authorities in exchange for the official’s support for placing Lilly drugs on the government reimbursement list.
Lilly agreed to pay disgorgement of $13,955,196, prejudgment interest of $6,743,538, and a penalty of $8,700,000 for a total payment of $29,398,734. Without admitting or denying the allegations, Lilly consented to the entry of a final judgment permanently enjoining the company from violating the anti-bribery, books and records, and internal controls provisions of the FCPA, Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act. Lilly also agreed to comply with certain undertakings including the retention of an independent consultant to review and make recommendations about its foreign corruption policies and procedures. The settlement is subject to court approval.

GERMAN COMPANY CHARGED BY SEC WITH FOREIGN CORRUPT PRACTICES VIOLATIONS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Dec. 17, 2012 — The Securities and Exchange Commission today charged Germany-based insurance and asset management company Allianz SE with violating the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) for improper payments to government officials in Indonesia during a seven-year period.

The SEC’s investigation uncovered 295 insurance contracts on large government projects that were obtained or retained by improper payments of $650,626 by Allianz’s subsidiary in Indonesia to employees of state-owned entities. Allianz made more than $5.3 million in profits as a result of the improper payments.

Allianz, which is headquartered in Munich, agreed to pay more than $12.3 million to settle the SEC’s charges.

"Allianz’s subsidiary created an 'off-the-books' account that served as a slush fund for bribe payments to foreign officials to win insurance contracts worth several million dollars," said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.

According to the SEC’s order instituting settled administrative proceedings against Allianz, the misconduct occurred from 2001 to 2008 while the company’s shares and bonds were registered with the SEC and traded on the New York Stock Exchange. Two complaints brought the misconduct to Allianz’s attention. The first complaint submitted in 2005 reported unsupported payments to agents, and a subsequent audit of accounting records at Allianz’s subsidiary in Indonesia uncovered that managers were using "special purpose accounts" to make illegal payments to government officials in order to secure business in Indonesia. The misconduct continued in spite of that audit.

According to the SEC’s order, the second complaint was made to Allianz’s external auditor in 2009. Allianz failed to properly account for certain payments in their books and records. The improper payments were disguised in invoices as an "overriding commission" for an agent that was not associated with the government insurance contract. In other instances, the improper payments were structured as an overpayment by the government insurance contract holder, who was later "reimbursed" for the overpayment. Excess funds were then paid to foreign officials who were responsible for procuring the government insurance contracts. Allianz lacked sufficient internal controls to detect and prevent the wrongful payments and improper accounting.

The SEC’s order found that Allianz violated the books and records and internal controls provisions of the FCPA, specifically Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Without admitting or denying the findings, Allianz agreed to cease and desist from further violations and pay disgorgement of $5,315,649, prejudgment interest of $1,765,125, and a penalty of $5,315,649 for a total of $12,396,423.

The SEC’s investigation was conducted by Irene Gutierrez, Jennifer Baskin and Tracy L. Price of the FCPA Unit.

TYCO INTERNATIONAL LTD. CHARGED BY SEC WITH MAKING ILLICIT PAYMENTS TO FOREIGN OFFICIALS

Credit:  U.S. Marshals Service

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Sept. 24, 2012 — The Securities and Exchange Commission today charged Tyco International Ltd. with violating the Foreign Corrupt Practices Act (FCPA) when subsidiaries arranged illicit payments to foreign officials in more than a dozen countries.

The SEC alleges that subsidiaries of the Swiss-based global manufacturer perpetuated schemes that typically involved payments of fake "commissions" or the use of third-party agents to funnel money improperly to obtain lucrative contracts. Overall, Tyco reaped illicit benefits amounting to more than $10.5 million as a result of the paid to win business.

Tyco, whose securities are publicly traded in the U.S., agreed to pay more than $26 million to settle the SEC’s charges and resolve a criminal matter announced today by the U.S. Department of Justice.

"Tyco’s subsidiaries operating in Asia and the Middle East saw illicit payment schemes as a typical way of doing business in some countries, and the company illicitly reaped substantial financial benefits as a result," said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement.

The SEC alleges that Tyco subsidiaries operated 12 different illicit payment schemes around the world starting before 2006 and continuing until 2009. The most profitable scheme occurred in Germany, where agents of a Tyco subsidiary paid third parties to secure contracts or avoid penalties or fines in several countries. These payments were falsely recorded as "commissions" in Tyco’s books and records when they were in fact bribes to pay off government customers. Tyco’s benefit as a result of these illicit payments was more than $4.6 million.

According to the SEC’s complaint, Tyco’s subsidiary in China signed a contract with the Chinese Ministry of Public Security for $770,000 but reportedly paid approximately $3,700 to the "site project team" of a state-owned corporation to be able to obtain the contract. This amount was improperly recorded as a commission. Tyco’s subsidiary in France recorded payments to individuals from 2005 to 2009 for "business introduction services." However, one of the individuals receiving payments was a security officer at a government-owned mining company in Mauritania, and many of the earlier payments were deposited in the official’s personal bank account in France. In Thailand, Tyco’s subsidiary had a contract to install a CCTV system in the Thai Parliament House in 2006, and paid more than $50,000 to a Thai entity that acted as a consultant. The invoice for the payment refers to "renovation work," but Tyco is unable to ascertain what, if any, work was actually done.

The SEC alleges that another scheme occurred in Turkey, where Tyco’s subsidiary retained a New York City-based sales agent who made illicit payments involving the sale of microwave equipment in September 2006 to an entity controlled by the Turkish government. Employees at Tyco’s subsidiary were well aware that the agent was paying foreign government customers to obtain orders. One internal e-mail stated, "Hell, everyone knows you have to bribe somebody to do business in Turkey. Nevertheless, I’ll play it dumb if [the sales agent] should call." The benefit obtained by Tyco as a result of the September 2006 deal was $44,513.

The SEC’s complaint alleges that Tyco’s books and records were misstated as a result of the misconduct, and Tyco failed to devise and maintain internal controls sufficient to detect the violations. The complaint also alleges that the payments by the sales agent to Turkish government officials violated the anti-bribery provisions of the FCPA.

In arriving at the settlement, the Commission considered Tyco’s extensive efforts to identify and remediate its wrongdoing. Tyco conducted a global review and internal investigation for potential FCPA violations and voluntarily disclosed its findings to the SEC while implementing significant, broad-spectrum remedial measures. Tyco consented to a proposed final judgment that orders the company to pay $10,564,992 in disgorgement and $2,566,517 in prejudgment interest. Tyco also agreed to be permanently enjoined from violating Section 13(b)(2)(A), Section 13(b)(2)(B), and Section 30A(a) of the Securities Exchange Act of 1934.

In the parallel criminal proceedings, the Justice Department entered into a Non-Prosecution Agreement with Tyco in which the company will pay a penalty of approximately $13.68 million.

The SEC’s case was investigated by David Frohlich, Stephen E. Jones, Matthew B. Greiner, and Brent S. Mitchell. The Commission acknowledges the assistance of the U.S. Department of Justice’s Fraud Section in this matter.

SEC CHARGES PFIZER INC. WITH VIOLATING THE FOREIGN CORRUPT PRACTICES ACT IN SEVERAL COUNTRIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Aug. 7, 2012 – The Securities and Exchange Commission today charged Pfizer Inc. with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries bribed doctors and other health care professionals employed by foreign governments in order to win business.
The SEC alleges that employees and agents of Pfizer’s subsidiaries in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia made improper payments to foreign officials to obtain regulatory and formulary approvals, sales, and increased prescriptions for the company’s pharmaceutical products. They tried to conceal the bribery by improperly recording the transactions in accounting records as legitimate expenses for promotional activities, marketing, training, travel and entertainment, clinical trials, freight, conferences, and advertising.
The SEC separately charged another pharmaceutical company that Pfizer acquired a few years ago – Wyeth LLC – with its own FCPA violations. Pfizer and Wyeth agreed to separate settlements in which they will pay more than $45 million combined to settle their respective charges. In a parallel action, the Department of Justice announced that Pfizer H.C.P. Corporation agreed to pay a $15 million penalty to resolve its investigation of FCPA violations.
“Pfizer subsidiaries in several countries had bribery so entwined in their sales culture that they offered points and bonus programs to improperly reward foreign officials who proved to be their best customers,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit. “These charges illustrate the pitfalls that exist for companies that fail to appropriately monitor potential risks in their global operations.”
According to the SEC’s complaint against Pfizer filed in U.S. District Court for the District of Columbia, the misconduct dates back as far as 2001. Employees of Pfizer’s subsidiaries authorized and made cash payments and provided other incentives to bribe government doctors to utilize Pfizer products. In China, for example, Pfizer employees invited “high-prescribing doctors” in the Chinese government to club-like meetings that included extensive recreational and entertainment activities to reward doctors’ past product sales or prescriptions. Pfizer China also created various “point programs” under which government doctors could accumulate points based on the number of Pfizer prescriptions they wrote. The points were redeemed for various gifts ranging from medical books to cell phones, tea sets, and reading glasses. In Croatia, Pfizer employees created a “bonus program” for Croatian doctors who were employed in senior positions in Croatian government health care institutions. Once a doctor agreed to use Pfizer products, a percentage of the value purchased by a doctor’s institution would be funneled back to the doctor in the form of cash, international travel, or free products.
According to the SEC’s complaint, Pfizer made an initial voluntary disclosure of misconduct by its subsidiaries to the SEC and Department of Justice in October 2004, and fully cooperated with SEC investigators. Pfizer took such extensive remedial actions as undertaking a comprehensive worldwide review of its compliance program.
The SEC further alleges that Wyeth subsidiaries engaged in FCPA violations primarily before but also after the company’s acquisition by Pfizer in late 2009. Starting at least in 2005, subsidiaries marketing Wyeth nutritional products in China, Indonesia, and Pakistan bribed government doctors to recommend their products to patients by making cash payments or in some cases providing BlackBerrys and cell phones or travel incentives. They often used fictitious invoices to conceal the true nature of the payments. In Saudi Arabia, Wyeth’s subsidiary made an improper cash payment to a customs official to secure the release of a shipment of promotional items used for marketing purposes. The promotional items were held in port because Wyeth Saudi Arabia had failed to secure a required Saudi Arabian Standards Organization Certificate of Conformity.
Following Pfizer’s acquisition of Wyeth, Pfizer undertook a risk-based FCPA due diligence review of Wyeth’s global operations and voluntarily reported the findings to the SEC staff. Pfizer diligently and promptly integrated Wyeth’s legacy operations into its compliance program and cooperated fully with SEC investigators.
In settling the SEC’s charges, Pfizer and Wyeth neither admitted nor denied the allegations. Pfizer consented to the entry of a final judgment ordering it to pay disgorgement of $16,032,676 in net profits and prejudgment interest of $10,307,268 for a total of $26,339,944. Wyeth also is required to report to the SEC on the status of its remediation and implementation of compliance measures over a two-year period, and is permanently enjoined from further violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Wyeth consented to the entry of a final judgment ordering it to pay disgorgement of $17,217,831 in net profits and prejudgment interest of $1,658,793, for a total of $18,876,624. As a Pfizer subsidiary, the status of Wyeth’s remediation and implementation of compliance measures will be subsumed in Pfizer’s two-year self-reporting period. Wyeth also is permanently enjoined from further violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. The settlements are subject to court approval.
The SEC’s investigation was conducted by Michael Catoe and Charles Cain of the Enforcement Division’s FCPA Unit. The SEC acknowledges the assistance of the U.S. Department of Justice’s Criminal Division’s Fraud Section and the Federal Bureau of Investigation in this matter.

TEXAS-BASED MEDICAL DEVICE COMPANY CHARGED BY SEC WITH BRIBING MEXICAN OFFICIALS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., July 10, 2012 – The Securities and Exchange Commission today charged Texas-based medical device company Orthofix International N.V. with violating the Foreign Corrupt Practices Act (FCPA) when a subsidiary paid routine bribes referred to as “chocolates” to Mexican officials in order to obtain lucrative sales contracts with government hospitals.

The SEC alleges that Orthofix’s Mexican subsidiary Promeca S.A. de C.V. bribed officials at Mexico’s government-owned health care and social services institution Instituto Mexicano del Seguro Social (IMSS). The “chocolates” came in the form of cash, laptop computers, televisions, and appliances that were provided directly to Mexican government officials or indirectly through front companies that the officials owned. The bribery scheme lasted for several years and yielded nearly $5 million in illegal profits for the Orthofix subsidiary.

Orthofix agreed to pay $5.2 million to settle the SEC’s charges, and agreed to pay a $2.22 million monetaryv penalty as part of a deferred prosecution agreement announced today by the U.S. Department of Justice.

“Once bribery has been likened to a box of chocolates, you know a corruptive culture has permeated your business,” said Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit. “Orthofix’s lax oversight allowed its subsidiary to illicitly spend more than $300,000 to sweeten the deals with Mexican officials.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Texas, the bribes began in 2003 and continued until 2010. Initially, Promeca falsely recorded the bribes as cash advances and falsified its invoices to support the expenditures. Later, when the bribes got much larger, Promeca falsely recorded them as promotional and training costs. Because of the bribery scheme, Promeca’s training and promotional expenses were significantly over budget. Orthofix did launch an inquiry into these expenses, but did very little to investigate or diminish the excessive spending. Later, upon discovery of the bribe payments through a Promeca executive, Orthofix immediately self-reported the matter to the SEC and implemented significant remedial measures. The company terminated the Promeca executives who orchestrated the bribery scheme.

The SEC’s proposed settlement is subject to court approval. Orthofix consented to a final judgment ordering it pay $5.2 million in disgorgement and prejudgment interest, and permanently enjoining the company from violating the books and records and internal controls provisions of the FCPA. Orthofix also agreed to certain undertakings, including monitoring its FCPA compliance program and reporting back to the SEC for a two-year period.

The SEC’s investigation was conducted by Carol Shau and Alka N. Patel in the Los Angeles Regional Office. The SEC acknowledges and appreciates the assistance of the U.S. Department of Justice’s Criminal Division - Fraud Section and the Federal Bureau of Investigation.

POWER PLANT SERVICES COMPANY RESOLVES FOREIGN CORRUPT PRACTICES ALLEGATIONS

FROM:  U.S. DEPARTMENT OF JUSTICE
Monday, June 18, 2012
Data Systems & Solutions LLC Resolves Foreign Corrupt Practices Act Violations and Agrees to Pay $8.82 Million Criminal Penalty
Data Systems & Solutions LLC (DS&S), a company based in Reston, Va., that provides design, installation, maintenance and other services at nuclear and fossil fuel power plants, has agreed to pay an $8.82 million criminal penalty to resolve violations of the Foreign Corrupt Practices Act (FCPA), announced Principal Deputy Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney for the Eastern District of Virginia Neil H. MacBride.

The department filed a two-count criminal information today in the Eastern District of Virginia charging DS&S with conspiring to violate, and violating, the FCPA’s anti-bribery provisions.

According to court documents, DS&S paid bribes to officials employed by the Ignalina Nuclear Power Plant, a state-owned nuclear power plant in Lithuania, to secure contracts to perform services for the plant.   To disguise the scheme, the bribes were funneled through several subcontractors located in the United States and abroad.   The subcontractors, in turn, made repeated payments to high-level officials at Ignalina via check or wire transfer.

The department also filed today a deferred prosecution agreement with DS&S.   Under the terms of the agreement, the department will defer prosecution of DS&S for two years.   In addition to the monetary penalty, DS&S agreed to cooperate with the department, to report periodically to the department concerning DS&S’s compliance efforts, and to continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations.   If DS&S abides by the terms of the deferred prosecution agreement, the department will dismiss the criminal information when the agreement’s term expires.

The agreement acknowledges DS&S’s extraordinary cooperation, including conducting an extensive, thorough and swift internal investigation; providing to the department extensive information and evidence; and responding promptly and fully to the department’s requests.   In addition, DS&S has engaged in extensive remediation, including terminating the officers and employees responsible for the corrupt payments; instituting a more rigorous compliance program; enhancing its due diligence protocol for third-party agents and subcontractors; strengthening its ethics policies; providing FCPA training for all agents and subcontractors; and establishing heightened review of most foreign transactions.

The case is being prosecuted by Trial Attorney Daniel S. Kahn of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Charles Connolly from the Eastern District of Virginia.   The case was investigated by the FBI’s Washington Field Office, the Department of Energy Office of Inspector General, and the Internal Revenue Service Criminal Investigation’s Washington D.C. Field Office.   The Criminal Division’s Office of International Affairs provided assistance.

FORMER CORPORATE VP PLEADS GUILTY TO FOREIGN BRIBERY OFFENCE

FROM:  U.S. DEPARTMENT OF JUSTICE
Friday, June 15, 2012
Former Vice President at California Valve Company Pleads Guilty to Foreign Bribery Offense
WASHINGTON – David Edmonds, the former vice president of worldwide customer service at Rancho Santa Margarita, Calif.-based valve company Control Components Inc. (CCI), pleaded guilty today to violating the Foreign Corrupt Practices Act (FCPA), announced the Justice Department’s Criminal Division, the U.S. Attorney’s Office for the Central District of California and the FBI’s Washington Field Office.

Edmonds, who resides in San Clemente, Calif., pleaded guilty today before U.S. District Judge James V. Selna in Santa Ana, Calif., to a one-count superseding information charging him with making a corrupt payment to a foreign government official in Greece in violation of the FCPA.  According to court documents, CCI designed and manufactured service control valves for use in the nuclear, oil and gas, and power generation industries worldwide.

At sentencing, Edmonds, 59, faces up to 15 months in prison.  Sentencing is scheduled for Nov. 19, 2012.

Edmonds is the seventh former CCI executive to plead guilty to FCPA charges in connection with the company’s bribery scheme:

On May 29, 2012, Paul Cosgrove, CCI’s former head of worldwide sales, pleaded guilty to one count of making a corrupt payment to a foreign government official.
On April 17, 2012, Stuart Carson, CCI’s former president, and Hong “Rose” Carson, CCI’s former director of sales for China and Taiwan, each pleaded guilty to one count of making a corrupt payment to a foreign government official.

On April 28, 2011, Flavio Ricotti, CCI’s former vice president of sales for Europe, Africa, and the Middle East, pleaded guilty to one count of conspiring to violate the FCPA.
On Feb. 3, 2009, Richard Morlok, the former CCI finance director, pleaded guilty to one count of conspiracy to violate the FCPA.

On Jan. 8, 2009, Mario Covino, the former director of worldwide factory sales for CCI, pleaded guilty to one count of conspiracy to violate the FCPA.

Stuart and Rose Carson, Cosgrove, Covino, Morlok and Ricotti are scheduled to be sentenced later this year.  FCPA charges brought in April 2009 against Han Yong Kim, the former president of CCI’s Korean office, are pending.  An indictment merely contains allegations and defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

On July 31, 2009, CCI pleaded guilty to a three-count criminal information charging the company with conspiracy to violate the FCPA and the Travel Act, and two substantive violations of the FCPA.  CCI was ordered to pay an $18.2 million criminal fine, placed on organizational probation for three years, and ordered to create and implement a compliance program and retain an independent compliance monitor for three years.  CCI admitted that from 2003 through 2007, it made corrupt payments in more than 30 countries, which resulted in net profits to the company of approximately $46.5 million from sales related to those corrupt payments.

The case is being prosecuted by Deputy Chief Charles G. La Bella and Trial Attorney Andrew Gentin of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Douglas McCormick and Gregory Staples of the U.S. Attorney’s Office for the Central District of California.  The case was investigated by the FBI’s Washington Field Office and its team of special agents dedicated to the investigation of foreign bribery cases.

VALVE COMPANY EXECUTIVE PLEADS GUILTY TO FOREIGN BRIBERY OFFENSE

Photo:  Majesty of Justice.  Credit:  U.S. Justice Department
FROM:  U.S. DEPARTMENT OF JUSTICE
Tuesday, May 29, 2012
Former Head of Worldwide Sales at California Valve Company Pleads Guilty to Foreign Bribery Offense
WASHINGTON – Paul Cosgrove, the former Head of Worldwide Sales at Rancho Santa Margarita, Calif.-based valve company Control Components Inc. (CCI) pleaded guilty today to violating the Foreign Corrupt Practices Act (FCPA), announced the Justice Department’s Criminal Division and the U.S. Attorney’s Office for the Central District of California.

Cosgrove, who resides in Laguna Niguel, Calif., pleaded guilty today before U.S. District Judge James V. Selna in Santa Ana, Calif., to a one-count superseding information charging him with making a corrupt payment to a foreign government official in China in violation of the FCPA.  According to court documents, CCI designed and manufactured service control valves for use in the nuclear, oil and gas, and power generation industries worldwide.  At sentencing, Cosgrove, 65, faces up to 15 months in prison.  Sentencing is scheduled for Aug. 27, 2012.

On Apr. 8, 2009, Cosgrove and five other former executives of CCI were charged in a 16-count indictment for their roles in the foreign bribery scheme.  The five other former CCI executives charged were Stuart Carson, CCI’s former president; Hong “Rose” Carson, CCI’s former director of sales for China and Taiwan; David Edmonds, CCI’s former vice president of worldwide customer service; Flavio Ricotti, the former CCI vice president of sales for Europe, Africa and the Middle East; and Han Yong Kim, the former president of CCI’s Korean office.  On Apr. 28, 2011, Ricotti pleaded guilty to one count of conspiracy to violate the FCPA.  On Apr. 17, 2012, Stuart Carson and Hong “Rose” Carson each pleaded guilty to one count of making a corrupt payment to a foreign government official in violation of the FCPA.  The trial of Edmonds is scheduled for Jun. 26, 2012.  The charges against Kim are pending.  An indictment merely contains allegations and defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

In related cases, two defendants previously pleaded guilty to conspiring to bribe officers and employees of foreign state-owned companies on behalf of CCI.  On Jan. 8, 2009, Mario Covino, the former director of worldwide factory sales for CCI, pleaded guilty to one count of conspiracy to violate the FCPA.  On Feb. 3, 2009, Richard Morlok, the former CCI finance director, also pleaded guilty to one count of conspiracy to violate the FCPA.  Stuart and Rose Carson, Covino, Morlok and Ricotti are scheduled to be sentenced later this year.

On July 31, 2009, CCI pleaded guilty to a three-count criminal information charging the company with conspiracy to violate the FCPA and the Travel Act, and two substantive violations of the FCPA.  CCI was ordered to pay an $18.2 million criminal fine, placed on organizational probation for three years, and ordered to create and implement a compliance program and retain an independent compliance monitor for three years.  CCI admitted that from 2003 through 2007, it made corrupt payments in more than 30 countries, which resulted in net profits to the company of approximately $46.5 million from sales related to those corrupt payments.

The case is being prosecuted by Deputy Chief Charles G. La Bella and Trial Attorney Andrew Gentin of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Douglas McCormick and Gregory Staples of the U.S. Attorney’s Office for the Central District of California.  The case was investigated by the FBI’s Washington Field Office and its team of special agents dedicated to the investigation of foreign bribery cases.

FORMER MORGAN STANLEY EXEC. CHARGED WITH WITH FOREIGN CORRUPT PRACTICES VIOLATIONS AND FRAUD

FROM:  SECURITIES AND EXCHANGE COMMISSION
SEC Charges Former Morgan Stanley Executive with FCPA Violations and Investment Adviser Fraud
Washington, D.C., April 25, 2012 — The Securities and Exchange Commission today charged a former executive at Morgan Stanley with violating the Foreign Corrupt Practices Act (FCPA) as well as securities laws for investment advisers by secretly acquiring millions of dollars worth of real estate investments for himself and an influential Chinese official who in turn steered business to Morgan Stanley’s funds.

The SEC alleges that Garth R. Peterson, who was a managing director in Morgan Stanley’s real estate investment and fund advisory business, had a personal friendship and secret business relationship with the former Chairman of Yongye Enterprise (Group) Co. – a Chinese state-owned entity with influence over the success of Morgan Stanley’s real estate business in Shanghai. Peterson secretly arranged to have at least $1.8 million paid to himself and the Chinese official that he disguised as finder’s fees that Morgan Stanley’s funds owed to third parties. Peterson also secretly arranged for him, the Chinese official, and an attorney to acquire a valuable Shanghai real estate interest from a Morgan Stanley fund. Peterson was acquiring an interest from the fund but negotiated both sides of the transaction. In exchange for offers and payments from Peterson, the Chinese official helped Peterson and Morgan Stanley obtain business while personally benefitting from some of these same investments. Peterson’s deception, self-dealing, and misappropriation breached the fiduciary duties he owed to Morgan Stanley’s funds as their representative.

Peterson agreed to a settlement of the SEC’s charges in which he will be permanently barred from the securities industry, pay more than $250,000 in disgorgement, and relinquish his interest in the valuable Shanghai real estate (currently valued at approximately $3.4 million) that he secretly acquired through his misconduct. The U.S. Department of Justice has filed a related criminal case against Peterson.

“Peterson crossed the line not once, but twice. He secretly bribed a government official to illegally win business for his employer and enriched himself in violation of his fiduciary duty to Morgan Stanley’s clients,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This case illustrates the SEC’s commitment to holding individuals accountable for FCPA violations, particularly employees who intentionally circumvent their company's internal controls.”

Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, added, “As a rogue employee who took advantage of his firm and its investment advisory clients, Peterson orchestrated a scheme to illegally win business while lining his own pockets and those of an influential Chinese official.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of New York, Peterson’s violations occurred from at least 2004 to 2007. His principal responsibility at Morgan Stanley was to evaluate, negotiate, acquire, manage and sell real estate investments on behalf of Morgan Stanley’s advisers and funds. He was terminated in 2008 due to his FCPA misconduct.

The SEC alleges that Peterson led Morgan Stanley’s effort to build a Chinese real estate investment portfolio for its real estate funds by cultivating a relationship with the Chinese official and taking advantage of his ability to steer opportunities to Morgan Stanley and his influence in helping with needed governmental approvals. Morgan Stanley thus partnered with Yongye on a number of significant Chinese real estate investments. At the same time, Peterson and the Chinese official expanded their personal business dealings both in a real estate interest secretly acquired from Morgan Stanley as well as by investing together in Chinese franchises of well-known U.S. fast food restaurants. Peterson failed to disclose these investments in annual disclosures that Morgan Stanley required him to make as part of his employment.

According to the SEC’s complaint, Peterson openly credited the Chinese official with helping obtain approvals required from other Chinese government entities for a deal to close. He wrote to several Morgan Stanley employees in response to an e-mail discussing the terms of one of Yongye’s purported investments, “Everyone pls keep in mind the big picture here. YY gave us this deal. ... So we owe them a favor relating to this deal. ... This should be very easy and friendly.” In another e-mail a week later, Peterson described “YYI” as “our friends who are coming in because WE OWE THEM A FAVOR.”

The SEC alleges that a Morgan Stanley compliance officer specifically informed Peterson in 2004 that employees of Yongye, a Chinese state-owned entity, were government officials for purposes of the FCPA. Peterson also received at least 35 FCPA compliance reminders from Morgan Stanley, but nonetheless committed the FCPA violations.

The SEC’s complaint charges Peterson with violations of the anti-bribery, books and records and internal control provisions of the FCPA, and with aiding and abetting violations of the anti-fraud provisions of the Investment Advisers Act of 1940. Peterson consented to a court order requiring him to disgorge $254,589 and relinquish to a court-appointed receiver the interest he secretly acquired from Morgan Stanley’s fund in the Jin Lin Tiandi Serviced Apartments. Peterson’s interest has a current estimated value of approximately $3.4 million. The proposed settlement is subject to court approval. Peterson also has consented to permanent industry bars based on the anticipated entry of the injunctions against him and his criminal conviction.

The SEC acknowledges the assistance of the Fraud Section of DOJ’s Criminal Division, the U.S. Attorney’s Office for the Eastern District of New York, and the Federal Bureau of Investigation. Morgan Stanley, which is not charged in the matter, cooperated with the SEC’s inquiry and conducted a thorough internal investigation to determine the scope of the improper payments and other misconduct involved.